TReDS Explained and Unleashed by Kalraj Mishra

Government of India is committed towards the Micro, small and medium sized businesses, this commitment became visible this time through Union MSME Minister Kalraj Mishra‘s own writings on his social network sites about the Trade Receivables Discounting System (TReDS) saying that a significant part of the working capital requirement of a MSME arises due to long receivables realization cycles.

Earlier, it was considered that the biggest challenge ahead infront policymakers is about the awareness level of schemes among MSMEs.

An electronic Trade Receivables Discounting System (TReDS) would be established financing of trade receivables of MSMEs, from corporate and other buyers, through multiple financiers.

This should improve the liquidity in the MSME sector significantly, he wrote.

On his post, an MSME entrepreneur wrote, “There should be a compulsory credit rating data generated through financing banks kept as data bank. This can or should be used to tap all discounted bills of particular buyer along with history so that discounting banks feel comfortable with the buyer and proper insuring facilities with same data available at large further evolves system.

Just including corporate buyers does not let us anywhere. .as most of the MSME serving corporate buyers can tap existing set up. The new system should include small and medium sized wholesalers of commodities Like rice, pulses or any industrial products. Make flow of finance to MSME good,” he added.

Another MSME entrepreneur wrote, “Such a task we MSMEs are waiting for long period.”

A month earlier, RBI had received seven applications for setting up TReDS for the small and medium enterprises sector.

Speaking at a seminar on MSME Financing in Pune in August, RBI Deputy Governor, SS Mundra said, “The RBI has received seven applications for setting up TReDS, and at present due diligence is on. Hopefully we should soon see the exchanges operational in the country.”

Pointing out that apart from credit, one of the biggest pain points for medium and small enterprises was timely realisations of their receivables which created a big dent in the cash flow, he said, adding: “We have urged the government of India if they can find a legislative mechanism to make it compulsory for large corporates, public sector enterprises and going forward even government departments who purchase from MSMEs, to register themselves on TReDs so that they come under a defined definition of paying their dues on the appointed date.”

This is something that will bring a big change in the MSME sector, he added.

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